|What the new mortgage changes may mean to you
Ottawa has announced new rules in response to concerns that some markets in Canada are overheated and that Canadian debt levels continue to increase. These changes are meant to alleviate risk in Canada’s housing market.
Here are the changes in a nutshell:
- “A Mortgage Rate Stress Test” for all insured mortgages. This means that all insured mortgages will now be qualified at the Bank of Canada benchmark rate, currently at 4.64%, instead of the contract rate offered on their commitment. For example, if you have a commitment for 2.49% on a five-year fixed rate, then you would have to qualify at the benchmark rate of 4.64%, rather than the commitment rate. That does not mean your payments would increase to the higher amount, just that you would need to be able to afford the payments as if they were at that higher amount. This change is scheduled to come into effect on October 17, 2016.
- “Safer Lending”. This means that mortgages insured through portfolio or bulk insurance must now meet the same criteria as those that are high ratio insured. This change is scheduled to come into effect on November 30, 2016.
- Closing “loopholes” on taxes. This refers to capital gains exemptions on principal residences that should apply only to residents of Canada.
The broader implications
We don’t know yet how this may affect the number of people who will no longer qualify, whether first time home buyers, those moving up or those who wish to refinance. From what we know so far, those who already have mortgage insurance policies in place should continue to be qualified at the contract rate going forward and should have no problem at renewal.
Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at WWW.GUYTHEMORTGAGEGUY.COM